The unemployment rate is an important metric for tracking the health of the labor market. It is published by the Bureau of Labor Statistics on a monthly basis.
The unemployment rate for June was recently released, and seems to be showing signs that the local economy is improving. But a closer look at the data reveals that the economic fallout of the pandemic is still in motion.
In June, the unemployment rate in Kentucky was 4.3 percent. The unemployment rate in the Louisville metropolitan region was 6.2 percent. Both figures are well below the national unemployment rate of 11.1 percent. (Note: these figures are seasonally adjusted)
At first glance, this sounds like really good news! The unemployment rate fell considerably from April’s peak. But this is when it’s important to understand what the unemployment rate actually tells us, and how the pandemic environment impacts it.
There are a couple conditions that have to be met for someone to be counted as unemployed. First- the obvious- a person did not have a job during the week that includes the 12th of the month. They also have to be available for work. The third condition is that the person either looked for work in the previous month or that they were on a temporary layoff with an expectation to be recalled by their employer.
It’s that last condition that has been particularly disrupted by the pandemic. If someone did not actively look for a job because of health concerns, lack of childcare, or other reasons, they wouldn’t be counted as unemployed. In addition, if someone was temporarily laid off but then learned it had become a permanent layoff, they also wouldn’t be counted as unemployed unless they actively looked for a job.
When someone does not have a job, but is also not looking for work, they are classified as not being in the labor force. People drop out of the labor force for perfectly valid reasons: they retire, they choose to stay home to take care of children, go to school, or other reasons. These people are taken out of the equation when it comes to calculating the unemployment rate. In normal times, this makes a lot of sense. You don’t want to count someone as unemployed when they do not intend to be considered as a potential worker. During the pandemic, however, this exclusion has resulted in an artificially low unemployment rate.
Between May and June, nearly 110,000 Kentuckians went from being unemployed to not being in the labor force. The decline in the state unemployment rate was primarily driven by an overall decline in the labor force, not because unemployed workers found jobs.
Within the Louisville region, the size of the labor force has declined by 7% since February. These are workers who just a few months ago were active participants in the labor market. While the region has started to see employment levels rise in May and June, there are more than 60,000 people who were employed in February, who are no longer employed in June. Some of them are counted as unemployed while others are counted as outside of the labor force.
We would expect, indeed we hope, that many of these workers will re-enter the labor force and begin looking for work. Despite the health concerns and lack of childcare, many workers will have to look for work due to the expiration of expanded unemployment insurance benefits. When this happens, the unemployment rate is likely to come back up, as workers and employers continue to reckon with the economic fallout of the pandemic.
As the region’s local workforce boards, KentuckianaWorks and WorkOne Southern Indiana are here to help displaced workers. Services for the local workforce are free, and include job search, career planning, resume building, interview prep, skills training, and employer referrals. While the physical career centers remain closed, services are still being provided virtually. Check out the resources available here and here.
